| # | Cold Wallets | Hot Wallets |
| 1 | Trezor | Metamask |
One of the most important elements in the cryptographic world and blockchain technology are wallets. The use of these tools is essential when managing our cryptocurrencies. That is why choosing an appropriate one that meets our needs is as important as having one. A wallet is software or hardware designed exclusively to store and manage the public keys and private keys of our cryptocurrencies.
As we already mentioned, wallets are one of the most important and essential elements when operating with them. This is because they are the ones that allow us to send or receive payments in cryptoactives. Unlike the traditional financial system, Bitcoin and other cryptocurrencies are fully digital currencies that do not exist in the physical world and that work based on cryptography. Therefore, the design of the wallets is of vital importance to be able to operate and manage our funds.
Cryptocurrencies as such do not exist as currencies, but rather as transaction records contained within a blockchain that is operated by interconnected nodes around the world. So, the public keys and above all, the private keys within a wallet are what give us ownership and rights over the cryptocurrencies transferred to a particular address. Let's look at this in more detail:
1) The public key: it is similar to a bank account number. We can give it to anyone to send us money, without the risk that they can extract our funds. Through the public key, addresses are generated to receive, consult and see the status of our funds.
2) The private key: It works as a kind of key, a PIN or password that we should not reveal to anyone, since it gives us the right to spend the cryptocurrencies contained in an address. Thus, the owner of the private key will be the owner of the funds and will have full control over them.
As bitcoin and other cryptocurrency systems are completely decentralized, there is no entity or body that controls them. That is why wallets play a very important role in this ecosystem. They are a piece of basic infrastructure that allow us to trade cryptocurrencies. In them we can see and consult our balances, in addition to the operations carried out and received. They also allow us to operate our funds with full control over them. We do not need the permission or authorization of any third party to carry out an operation.
In addition to providing us with security and confidence to carry out our operations, wallets also allow us to sign transactions without the need for the private keys to leave the device. When we make a shipment to a person, we are transmitting a value in the form of a transaction. Therefore, we are transferring ownership of a certain amount of money to that person. In order for the network to confirm such a transfer and for the recipient to use the funds, a digital signature is required. In this way it will be verified that the person carrying out the operation is the owner of the funds and not a third party.
1) Cold Wallets: They are digital wallets where you can store and manage your money in this case, cryptocurrencies. Cold wallets are those that use keys generated by a source that is not connected to the blockchain and therefore not to the internet. That is why they are called cold wallets.
This type of wallets offers a huge advantage over the others, since they play the role of a savings bank account. Where we can save money that we will not use for some time. They are the most used by users to deposit and safeguard large amounts of cryptocurrencies, since they offer an unbeatable level of security.
As they are not constantly connected to the internet, they are not prone to hacking attacks or key theft as is the case with hot wallets. However, there is still a risk of losing money if the hardware or paper containing the keys is lost. To better understand this, let is see the types of cold wallets that exist today.
2) Hot Wallets: A hot wallet is a cryptocurrency wallet that is always connected to the internet and the cryptocurrency network. Hot wallets are used to send and receive cryptocurrency and allow you to see how many tokens you have available to use.
When you buy or mine cryptocurrency, you need to set up a wallet to facilitate transactions if you choose to use it to purchase goods or services. Your cryptocurrencies, or rather the private keys you use to access the currency, are stored in these wallets when ownership is transferred to you by the ecosystem.
When you own a cryptocurrency, you are given private keys that identify it as yours. Public keys are similar to account usernames; they identify the wallet so that the user can receive tokens without revealing the identity of the wallet. Private keys are similar to personal identification numbers; they allow you to access your wallet and check balances, initiate transactions and more. Without one of these keys, your wallet is effectively useless.
Hot wallets are applications connected to the internet and the cryptocurrency infrastructure, allowing you to use them. For a user, the hot wallet is the interface to access and store their cryptocurrency. For the cryptocurrency network, its role is to facilitate any changes to the transaction log that is maintained on the decentralized blockchain ledger for whatever cryptocurrency you are using.